Interest.com /March 13, 2018

Kevin Gahagan weighs in with considerations for parents lending adult kids money to buy a home.

The main point here is to respect the formality of the loan, even if it comes from a place of love.

Kevin especially recommends formalizing the agreement with a promissory note and mortgage:

“The parents are going to have to work with a title company to create the required deed of trust documents and record these with the county in which the residence is located,” says Kevin Gahagan, a certified financial planner and principal of Mosaic Financial Partners in San Francisco. “This will secure their interest in the property.”

“A promissory note and mortgage should be executed between the parents and child,” he says. “Without this, the parents' financial interest in the property could be jeopardized were the child to lose the house to creditors. It also provides evidence that the funds provided are a loan and not a gift.”

This formal loan document should state the loan's interest rate, term and transfer-ability, Gahagan says. It should also include an amortization table showing the balance remaining and equity accrued at any point in the loan’s lifespan.

Advisory HQ / March, 2018

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